Dividend Yield

Dividend percentage is calculated on face value. If a share has a ₹10 face value and pays ₹10, the news flashes "100 percent dividend". You did not buy at face value, so the number tells you nothing. Dividend yield divides by the price you actually pay.

Dividend policy reveals what management thinks about growth. A company with a near-monopoly and no need for new products or marketing, the Coal India type, has no use for retained cash, so it pays it out and the yield sits above 5 percent. A company fighting in competitive markets and funding acquisitions, the InfoEdge type, keeps everything and yields about 0.3 percent. A very high yield usually signals that the company sees limited growth ahead. No dividend despite high profits usually signals the opposite.

Three cautions. A dividend comes out of the share price: on the ex-dividend date the price falls by roughly the dividend amount, so a ₹6 dividend is a ₹6 price drop, not free money. Dividends are taxed twice, once as corporate tax before the payout and again in your hands. And a high dividend yield can be an artifact of a shrunken equity base that also flatters ROE. Where a company has surplus cash, a buyback above market price returns it with the same outflow but gives shareholders the choice.